CBN Raises Banks’ Forex Loan Limits To Resolve Breaches

The Central Bank of Nige­ria (CBN) has increased the limit on banks’ for­eign currency borrowings to 125 percent of sharehold­ers’ fund after some lenders breached its regulatory lim­it due to the recent fall in the naira, according to a circular seen by Reuters.

The new regulation replac­es a 2014 rule capping foreign borrowings, including Euro­bonds, at 75 percent of share­holders’ funds as Nigeria tries to manage widespread capital shortfalls at lenders due to a currency crisis and bad loans.

“A major consequence of this development was the inadver­tent breach of the regulatory limit for foreign currency bor­rowings by some banks,” the central bank said in a circular.

“To address this develop­ment … the aggregate foreign currency borrowing of a bank borrowing should not exceed 125 percent of shareholders’ funds.”

The new rules also pre­scribe that all foreign borrow­ing should be hedged through the financial markets and debt should have a minimum of five years’ maturity except for trade lines.

It directed lenders to re­port on their utilisation of for­eign currency borrowings on a monthly basis.

Nigeria has been gripped by a shortage of dollars since crude oil prices plunged, trig­gering a currency crisis that left lenders and other com­panies struggling to purchase hard currency and battered in­vestor confidence.

The naira lost around a third of its official value last year af­ter the central bank lifted its dollar peg to float the curren­cy on the interbank market.

Source: BreakingTimes

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cbn, Forex loan

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